What is acid test ratio and ROA ratio

What is acid test ratio and ROA ratio - Investment ratio calculation severe test, also known as quick ratio or the pounce ratio known. This ratio does not include inventory and prepaid expenses, including current ratio, which limits cash and items of assets and enterprises to quickly converted to cash. Limited asset classes, this is known as quick or liquid assets. Acid text rate divided by the total current assets current liabilities.

This ratio is also known as the pounce ratio of stress, you are for the worst case, if creditors can capture the business of business and demand quick payment liabilities of the enterprise computing. Short-term creditors do not have the right, except in special circumstances call for an immediate payment. This ratio is a conservative approach, that is, to see a company's ability to pay its short-term liabilities.

One factor affecting the corporate bottom line profits is whether the advantages of using debt. An enterprise can achieve financial leverage gain, meaning that it has exceeded the income on borrowed money with borrowed money to pay the interest for more profits. Annual net income of an enterprise may be due to a large part of financial leverage. Determine the proportion of right of abode in earnings before interest and income tax rates by dividing (EBIT) of net operating assets.

Investors borrowed money compared with the rate the company's residence. If a company's ROA is 14 times, its debt interest rate is 8 percent, corporate net capital gain of 6 percent more than its interest payments.

ROA is a useful interpretation of the ratio of profit to performance, in addition to determining the financial gains or losses. Right of abode in the use of tests known as the capital, interest, and measures how to profit before income tax by enterprises employing a total capital gains.